Traders Cooperative

[Joe Stocks]

ACT - Long at $21.00. Mortgage insurer 81.6% owned by GNW.

I responded to some comments on a SA article this weekend and ran some numbers for ACT and possible projections. Not paying a regular dividend YET, but said they will start this year.

What I wrote at SA;

"Another interesting exercise is taking the $542mil in expected ACT earnings and dividing by the 163 mil shares outstanding for $3.33 per share (street expects 3.35 and 3.57 in 2023). Pay out 40% of that in dividends for a dividend of $1.33. Put a 4% yield on that for a price per share of $33.25. 4%? RDN is at 3.34; ESNT 1.8%; MTG 2.15. At 5% ACT goes for $26.60. For fun, lets look at a 4% yield for GNW's ownership. GNW owns 133 million shares of ACT. ACT at $33.25 gives it a market cap of $5.42 bil. GNW's ownership of 81.6% is equal to $4.42bil, or $8.58 per share.
I think once ACT establishes a consistent dividend the stock then takes on a whole bigger audience of income buyers. GNW has an interest to have that dividend as large as possible. I calculated a 40% payout of earnings. What if it is 50%? 50% of next year's projected earnings of $3.57 is $1.78. With a 4% yield gives you a PPS of $44.50 for ACT. To GNW that is 11.49 a share!"

GNW is currently at 3.98. I see limited downside for them. They have been in a trading range about the same for 6 years. They are so much better in shape than they were 6 years ago. One could argue that they could by GNW and get ACT cheaper, and I would agree. But GNW seems to be range bound and I think ACT could see a bounce when regular dividends are announced.